Show Notes:

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Lecture Slides:

Welcome to YouCounsel.

This is our second lecture on the topic, that if you are in a situation where you intend to claim refund of monies paid for a summer camp for your children or for airline tickets for the flights that have been cancelled due to Covid-19, how do you go about doing that.

Once again we begin with our usual disclaimer that this lecture is not legal advice.  If you have any specific questions regarding your own issues you should contact a lawyer or a paralegal or the Law Society of Ontario, if you’re in Ontario or another provincial or Territorial Law Society in a different province or territory.

Now in this lecture series as I mentioned earlier, we have five lectures.  In Lecture 1 we had already discussed the underlying legal principles that relate to breach of contract. In this lecture we’ll talk about some of the defences to the breach of contracts. In the 1st lecture we have talked about that if you are the party, who is the non-breaching party, you are the party who is willing to perform the contract but the other party has breached the contract, you are entitled to damages. Those damages could be more than the money that you have deposited or the value of the contract. It could be more than that and then we raised the question that, can the breaching party, the non performing party, can it avoid liability? Can it avoid payment of damages partly or completely? That brings us to the answer “yes”.  That brings us to today’s lecture which is the defences to the breach of contract.

In the 3rd lecture we’ll apply all these principles to a summer camp scenario.

In the 4th lecture we’ll talk about, how to reverse credit card payments and if all fails, then how do you go to court and claim your damage.

There are three kinds of defences that a breaching party—a non-performing party—can claim. The first category is called common law defences. They come from the common law system, which is based on judge-made law over centuries. The second one is contractual defences. These are the defences that could be found in a specific contract between you and the other party.  The third kind of defence is statutory defence—which may be codified in a statute in your province or in Canada, generally.  Those are the three kind of defences that could allow a breaching party, a non-performing party to avoid some or all of the liability.

What are common law defences? Let’s talk about it. There are many justifications, many defences for a breaching party to avoid liability or its obligations: that could be mistake, could be duress, coercion, could be misrepresentation. These are all varieties of defences that may be available to a party.  With respect to the scenario that we are dealing with – which is Covid-19 (in the pandemic), generally speaking, the common law defences that could be applied to this situation would be frustration of contract, impossibility, impracticability, etc. These are the three kind. There is another one in the U.S. called frustration of purpose. They’re all kind of similar but not exactly the same. They have separate definitions; we’re not going to get into that.

We will try to keep it simple.  What you want to understand is that in all of these defences what they are saying, is that an event or occurrence has transpired, which is beyond the control of the non-performing party.  That event or occurrence has disabled the party to perform its obligations under the contract – beyond their control.

For example, there are a number of examples in history that may apply.  It could be war, could be serious crime, could be riots, could be strikes, could be natural disasters. All of these things may – depending upon the circumstances of the case – fall under frustration of contract: impossibility, impracticability.

In our scenario, the airline is obviously going to advance the argument that the contract is frustrated or impossible to perform because governments have disallowed international travel.  They are ready to fly their planes. But they cannot because of the changes in law and regulations.  Similarly, the camp providers will argue that their contracts have been frustrated because the government has closed the schools until September (at least in Ontario) and social gatherings are not allowed – which is why this is beyond their control and they’re not able to perform the contract and therefore they should be excused from performing their obligations and to some extent liability.

What are the consequences of these defences?  When a court finds that the contract is indeed frustrated, it relieves parties – both parties, of their obligations and liabilities. What does that mean if the monies have been paid already or if there were any advance payments made? Those need to be refunded, deposits need to be returned.  Then if there are any deductions for expenses that may be possible – essentially the court is trying to find how the contract can end in the best possible way without being unjust to any of the parties. There are potentially some deductions of expenses possible to the advance payments but we will talk about it in more detail.

The second kind of defence is contractual defences. These are the defences that are in the contract between you and the party.  The most common example of such defence is called “force majeure clause” or an “Act of God” clause.  I can’t perform the contract because God did something. Thunder struck or lightning struck and the building burnt down or, there were natural disasters – the hurricane came or pandemic occurred, things like that. These are extraordinary events, very similar to what I said in the ‘frustration of contract’ but now that frustration of contract is in fact ‘codified’ in the specific contracts that you have between you and the non-performing parties.  These are scenarios which are beyond the control of parties and they have been codified.

Where would you find these clauses? Most common, these clauses ‘force majeure’ clauses will be in an insurance contract.  If you have an insurance contract for your house or for your car you read the terms and conditions and you will find that there will definitely be a force majeure clause in there. Not common in summer camp contracts—you won’t see, unlikely that you will see it in a summer camp contract. What are the consequences if there is such a clause?  The court is going to enforce that contractual provision.  Generally, what will happen is that all parties will be relieved of their obligations and liabilities.  Or, if the liabilities can be postponed, they will be postponed to a different time – but it depends.  Then the potential—there is a potential for refund of advance payments or deposits that have been made.  Then there’s a potential for deduction of related expenses. But whatever the contractual provision states about that occurrence then the court is going to impose it, unless there is a violation of some sort of statute.

Which brings us to our next defence, which is the statutory defence.  Statutory defences are defences that trump the common law and contractual defences.  If there is a statutory provision that applies to your circumstances—that provision is the one that the courts are going to enforce. With respect to our scenario there is a statute called Frustrated Contracts Act of Ontario. It’s in Ontario.  I understand that other provinces have similar legislation.  I’ve provided the link here. 

What does this contract do? It deals with scenarios (it deals with contracts) that have been frustrated or are impossible to perform. What happens in those contracts when the Court finds that a contract is frustrated or it is impossible to perform? Then section 3(1) and (2) require the return of monies that have already been paid by one party to another—so refund, give it back.  There are expenses that could be deducted. There are two sides of it.  Money needs to be paid and expenses can be deducted. Now, section 3(6) also says that the court should enforce if there is a contractual provision between parties related to the frustration of contract – then court ought to enforce that provision.

There’s one more example that I’m going to provide, which is a legislation called ‘Air Passenger Protection Regulations’. It’s in Canada. I have provided the link.  If you look at that legislation section 17 (2) requires the airlines to refund the ticket if the flight is cancelled, which is the scenario / the situation for most people. The legislation does not say you can give them a voucher and send them away and they can fly in a year’s time. If the passenger is willing to accept that, that’s fine.  But the law requires the airlines to refund full money under section 17(2) of this regulation.

Let’s sum it up again. The non-performing party may have a contractual common law or legislative or statutory defence. That is the only option they have which may enable them to limit their obligations or limit their liabilities – depending upon the circumstances. 

Now that we understand the law we’re going to take this law and we’re going to apply this law to stem camps because we’re aware of the circumstances of that case.  We’ll apply it and then we’ll see whether there is any liability, whether there is any refund that the stem camps are required to pay – which I can tell you yes. The answer is yes.  But we will discuss that in more detail in the next lecture.

Thank-you for watching.